Investing in your children's future - Unit Trusts and TFSA

Benjamin Franklin said: “An investment in knowledge pays the best interest.” Let’s be wise and use our knowledge to invest in our children’s future”

I do want to focus on investing in your child’s future and not only saving for your child’s education only. This includes his or her first deposit on a vehicle, property etc.

With this in mind we should involve our kids in this savings plan, they will also contribute a percentage to this plan with monies earned in any structured way you follow at home when they earn pocket money from as early as 10 years old.

We are taught to pay of our debts,

we should be taught to save and own our assets.

Why is it important to save money towards your children's future?

Some of us grew up where we had to start with nothing and still pay of a varsity loan. Some fortunate kids start with one foot in the door, being able to drive their own vehicle, own a property and put a deposit on a property to earn rental income and walk away with no loan to pay and start investing early in their lives for a secure retirement and also being able to provide better for their family. We see too many young adult still relying on their parents for support.

As Nelson Mandela famously said: "Education is the most powerful weapon which you can use to change the world." But the realities of today’s economic climate make it tough to save, particularly when it comes to education needs. Growing pressure on household incomes and the spiralling costs of school and university are major concerns for many families.

Fortunately, there are several ways you can save money for your children’s future.

When should I start Investing?

Affordability is always the issue, the priority should be the ‘what’ you are saving for, then prioritise your contribution. Time is your friend and the earlier you start the better, this means that you can make smaller contributions over a long period. The sooner you start saving, the more compound interest you will earn, and the better your long-term gains will be.

Teaching your kids from a very young age to have a futuristic outlook on life is important. They need to understand that money earned in not only for today or this month it should contribute to the future also.

Education costs have soared over the past few decades and show no sign of slowing down. When we look at accommodation and acquiring a vehicle, we are already stunned how inflation rose only in the few years since we bought our first asset.

What are you saving towards?

Are they intended for school fees, university education, a car when they reach 18, a down payment on a house or flat when they start working, paying for a wedding, or to give them a head start on their retirement savings? This will inform how much you should be contributing each month.

When your children contributes only a little towards this goal they will see the long term benefits it brings. This allows them to realise at an adult age they should spend wisely because they have a long term goal.

What should I look at before investing?

Look at the following as an investment vehicle,

  • affordability

  • tax consequences

  • how much risk is appropriate? The risk you are willing to take when investing, the risk you need to take to reach your goal, and your ability to take on risk, should all be considered before deciding on the underlying fund or assets.

How much do you need to save for education?

Education inflation is higher than South Africa’s Consumer Price Index (CPI). According to a report by Old Mutual, below is the average expected cost of educating a child for 1 year:

Cost of education in SA by 2025

  • Public Primary or High School: R63 300

  • Private Primary School: R154 900

  • Private High School: R248 700

  • University: R107 600

Cost of education in SA by 2035

  • Public Primary or High School: R149 800

  • Private Primary School: R366 700

  • Private High School: R588 800

  • University: R254 700

What are your options for saving for education?

It’s most important that you create a debit order, never ask or even think of this money as a potential to spend. Every debit order that goes off will be the foundation block for your child’s future.


1. Tax-free savings accounts

The tax-free savings account was launched on March 1, 2015. This is a great product for emergency savings, and other specialized goals. Deposit any amount up to R36 000 per year, and you will not be taxed on the amount, so any money you save will grow at a relatively faster rate compared to regular savings accounts. Start saving as early as possible and keep within the annual threshold amount, and the lifetime limit of R500 000. Within the Tax-free savings account your money will be invested in funds of your choice.

You can open a tax-free account for your child as soon as they have an ID number. Any money you save in that account becomes technically and legally your child’s money when they turn 18, so communicating the importance of a good education and applying funds wisely to your child from an early age.

Investments that Qualify as a Tax-Free Investment:

Retail savings Bond

Linked investment products


Exchange Traded Funds

Unit Trusts

Fixed Deposits

Endowment Policies

List of All Tax-Free Investment Accounts in South Africa:

Easy Equities


Most banking institutions


Old Mutual


Advantages of a Tax-Free Savings Account:
  • There are no penalties for immature withdrawals so you can withdraw your money at any time without incurring costs.

  • You can shift your investment from one TFSA to another.

  • Investment returns don’t affect your contributions limit of which investment returns may include dividends and/or interest on investment.

  • You can access your money at any given time before reaching retirement.

  • There is no age restriction to who can invest using a TFSA.

  • Tax doesn’t apply to this account so any returns that your investment yields come to you in full.

Whether you are wealthy or poor, you will be able to invest through a TFSA, with contributions starting at R180.00. Anyone can open a TFSA in South Africa


2. Medium- and long-term investments Unit Trusts / ETF’s

There are several investment plans available, but remember to consider the fees associated with your investment. Start to save from the time your child starts Grade 1 this will enable you to invest more aggressively and ride-out market fluctuations. Unit trusts can provide ideal vehicles to use as part of an education savings plan.

Selecting a Unit Trust:

Unit trusts have no lock-in period, meaning that you decide when and how many units to buy. I would recommend unit trust funds that have a very good diversified holding and major component being offshore. Children should start getting into the habit of long-term savings, because their savings should only really be accessed in 15 to 20 years’ time.

In order to select the most appropriate South African unit trust for yourself, you need to understand your financial plan. You also need to understand the concepts of asset allocation, diversification and the risk-return relationship.

If you are uncertain what to invest in, make contact with a investment adviser or financial planner. They can help you select the appropriate unit trust based on your financial plan.

Some typical types of funds available are:

  • money market funds (investing in money market instruments issued by government, corporates and banks),

  • stable funds (having significant cash and bonds exposure and fairly low-equity exposure),

  • balanced funds (with a balance of equities, property, bonds and cash-type investments), and

  • equity funds (comprising mainly equity and limited or no cash investments).

  • It is also possible to invest offshore through a South African rand denominated offshore unit trust.

Tax on Unit Trusts

If you are a South African resident, any dividend income earned by the unit trust is subject to a withholding tax. Again, this does not apply if you buy your unit trust through your Tax-free Savings Account. You will be taxed income tax for interest earned minus threshold, withholding tax for dividends earned and Capital Gains Tax minus threshold when the stock is sold.



For those of us who find saving difficult, a debit order can prove most useful. The monthly contribution is taken from your bank account before you have had a chance to spend your salary. Should you find yourself in a position that you need to skip a month’s investment due to an extraordinary expense, it is easy to stop the payment. You could then make up the payment over the next month or two.

Never wait too long before you take the step to invest. We want to grow a financially secure generation. Lets start educating our children from very young.

Looking for more, click on these links:

You can invest a lump sum when markets are down: Trendlines

Learn more about: ETF’s

Happy Saving !!

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